<PAGE>
PROSPECTUS
$125,000,000 Principal Amount
5 5/8% Convertible Subordinated Notes Due 2006
3,654,971 Shares
Common Stock, $.01 par value
RENAL TREATMENT CENTERS, INC.
-----------------------------------
This Prospectus relates to the resale of $125,000,000 aggregate principal
amount of 5 5/8% Convertible Subordinated Notes due 2006 (the "Notes") of Renal
Treatment Centers, Inc., a Delaware corporation ("Renal Treatment Centers" or
the "Company") issued in a private placement on June 12, 1996 (the "Debt
Offering"), and the resale of up to 3,654,971 shares of the Common Stock, $.01
par value (the "Common Stock"), of the Company, which are initially issuable
upon conversion of Notes by any holder of Notes that did not purchase the Notes
under the Registration Statement (of which this Prospectus is a part). The
Registration Statement (of which this Prospectus is a part) does not cover the
issuance of shares of Common Stock upon conversion of the Notes into shares of
Common Stock. The Notes and such shares of Common Stock issued upon conversion
of the Notes may be offered from time to time for the accounts of holders of
Notes named herein (the "Selling Securityholders"). See "Plan of Distribution."
Information concerning the Selling Securityholders may change from time to time
and will be set forth in Supplements to this Prospectus. The Company will not
receive any proceeds from the resale of the Notes or the shares of Common Stock
issuable upon conversion thereof.
The aggregate principal amount of Notes that may be offered by the Selling
Securityholders pursuant to this Prospectus is $125,000,000. As of the date of
this Prospectus, the aggregate principal amount of Notes outstanding is
$125,000,000.
The Notes are convertible into shares of Common Stock at any time after
August 11, 1996 and prior to maturity, unless previously redeemed or
repurchased, at a conversion price of $34.20 per share (equivalent to an initial
conversion rate of approximately 29.24 shares per $1,000 principal amount of
Notes), subject to certain adjustments. See "Description of Notes -- Conversion
of Notes." The outstanding Common Stock is quoted on the New York Stock
Exchange under the symbol "RXT." The reported last sale price of the Common
Stock on the New York Stock Exchange on August 30, 1996 was $32 5/8 per share.
See "Risk Factors" beginning on page 5 for a discussion of certain factors
that should be considered by prospective purchasers of the securities offered
hereby.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
-----------------------------------
The date of this Prospectus is September 3, 1996.
<PAGE>
Interest on the Notes is payable on January 15 and July 15 of each year,
commencing July 15, 1996. The Notes are not redeemable by the Company prior to
July 17, 1999. Thereafter, the Notes are redeemable, at any time, on at least
15 days' notice at the option of the Company, in whole or in part, at the
redemption prices set forth herein, in each case together with accrued interest.
In the event of a Change in Control (as defined), each holder of Notes may
require the Company to repurchase all or a portion of such holder's Notes at
100% of the principal amount thereof, together with accrued interest to the
repurchase date. See "Description of Notes -- Optional Redemption by the
Company" and "Description of Notes -- Repurchase at Option of Holders upon
Change in Control."
The Notes are unsecured and subordinated in right of payment to all
existing and future Senior Indebtedness (as defined) of the Company. As of June
30, 1996, the Company had approximately $9 million of indebtedness outstanding
that constituted Senior Indebtedness. The Company is a holding company and,
accordingly, the Notes are also effectively subordinated to all existing and
future indebtedness and other liabilities of the Company's subsidiaries. As of
June 30, 1996, the total indebtedness and other liabilities of the Company's
subsidiaries were approximately $16 million (excluding inter-company payables).
See "Description of Notes -- Subordination of Notes."
All of the Notes were initially issued pursuant to an exemption from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), provided by Section 4(2) thereof and were transferred to the
Selling Securityholders pursuant to Rule 144A(d)(4) under the Securities Act and
Regulation S under the Securities Act and to institutional accredited investors
pursuant to Rule 501(a)(1), (2), (3) or (7) under the Securities Act. Prior to
the registration of the Notes under the Registration Statement (of which this
Prospectus is a part), the Notes have been eligible for trading in the Private
Offerings, Resales and Trading through Automated Linkages ("PORTAL") Market of
the National Association of Securities Dealers, Inc.
The Company has been advised by the Selling Securityholders that the
Selling Securityholders, acting as principals for their own account, directly,
through agents designated from time to time, or through brokers, dealers, agents
or underwriters also to be designated, may sell all or a portion of the Notes or
shares of Common Stock which may be offered hereby by them from time to time on
terms to be determined at the time of sale. The aggregate proceeds to the
Selling Securityholders from the sale of Notes or Common Stock that may be
offered hereby by the Selling Securityholders will be the purchase price of such
Notes or Common Stock less commissions, if any. For information concerning
indemnification arrangements between the Company and the Selling
Securityholders, see "Plan of Distribution."
The Selling Securityholders and any brokers, dealers, agents or
underwriters that participate with the Selling Securityholders in the
distribution of the Notes or shares of Common Stock may be deemed to be
"underwriters" within the meaning of the Securities Act, in which event any
commissions received by such brokers, dealers, agents or underwriters and any
profit on the resale of the Notes or shares of Common Stock purchased by them
may be deemed to be underwriting commissions or discounts under the Securities
Act.
The Company will not receive any of the proceeds from the resale of the
Notes or Common Stock hereunder. The Company has agreed to bear certain
expenses in connection with the registration and sale of the Notes and the
Common Stock being offered by the Selling Securityholders.
The Company intends that the Registration Statement of which this
Prospectus is a part will remain effective until three years after the date of
the Debt Offering or such earlier date as of which such Registration Statement
is no longer required for the transfer of the Notes and the shares of Common
Stock issuable upon conversion of the Notes.
(ii)
<PAGE>
-----------------------------------
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS,
OTHER THAN AS CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE
AN IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF THE
SECURITIES BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE
SUCH OFFER, SOLICITATION OR SALE.
--------------------
(iii)
<PAGE>
TABLE OF CONTENTS
Page
----
AVAILABLE INFORMATION............................................(v)
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE..................(v)
PROSPECTUS SUMMARY............................................... 1
RISK FACTORS..................................................... 3
RATIO OF EARNINGS TO FIXED CHARGES............................... 8
USE OF PROCEEDS.................................................. 8
SELLING SECURITYHOLDERS.......................................... 8
PLAN OF DISTRIBUTION............................................. 11
DESCRIPTION OF NOTES............................................. 12
DESCRIPTION OF CAPITAL STOCK..................................... 21
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS........................ 23
LEGAL MATTERS.................................................... 26
EXPERTS.......................................................... 26
(iv)
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the offices of
the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, as well as at the following regional offices of the
Commission: Seven World Trade Center, Suite 1300, New York, New York 10048; and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. In
addition, the Commission maintains a Web site that contains such materials at
http://www.sec.gov. The Company's Common Stock is listed on the New York Stock
Exchange, 20 Broad Street, New York, New York 10005, and such reports, proxy
statements and other information concerning the Company can be inspected at such
Exchange.
The Company has filed with the Commission a Registration Statement
(which term shall include all amendments, exhibits and schedules thereto) on
Form S-3 under the Securities Act with respect to the Securities offered hereby.
This Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the Commission, and to which reference is hereby
made. Statements made in this Prospectus as to the contents of any document
referred to are not necessarily complete. With respect to each such document
filed as an exhibit to the Registration Statement, reference is made to the
exhibit for a more complete description of the matter involved, and each such
statement shall be deemed qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed with the Commission and are
incorporated by reference in this Prospectus:
(a) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995;
(b) The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1996, and Amendment No. 1 thereto on Form 10-Q/A filed June 6,
1996;
(c) The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1996;
(d) The Company's Current Report on Form 8-K dated February 20, 1996;
(e) The Company's Current Report on Form 8-K dated May 28, 1996;
(f) The Company's Current Report on Form 8-K dated May 29, 1996, and
Amendment No. 1 thereto on Form 8-K/A filed July 16, 1996;
(g) The Company's Current Report on Form 8-K dated August 23, 1996;
and
(h) The description of the Company's Common Stock set forth in the
Company's Registration Statement No. 33-74994 on Form S-1, initially filed with
the Commission under the Securities Act on February 4, 1994, under the caption
"Description of Capital Stock --Common Stock," which is incorporated by
reference in response to Item 1 of Registration Statement No. 1-14142 on Form 8-
A filed by the Company with the Commission on December 14, 1995 pursuant to
Section 12(b) of the Exchange Act.
(v)
<PAGE>
All documents filed by the Company pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act after the date of this Prospectus and prior to
the filing of a post-effective amendment which indicates that all securities
offered have been sold or which deregisters all securities then remaining
unsold, shall be deemed to be incorporated by reference in this Prospectus and
to be a part hereof from the date of filing of such documents. Any statement
incorporated herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement and any statement
contained herein shall be deemed to be modified or superseded for all purposes
to the extent that a statement contained in any subsequently filed document
which is deemed to be incorporated by reference modifies or supersedes such
statement.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon the request of such person, a copy of any or all
of the documents incorporated herein by reference, other than exhibits to such
documents (unless such exhibits are specifically incorporated by reference
herein). Such requests should be addressed to: Ronald H. Rodgers, Jr., Vice
President of Finance, Renal Treatment Centers, Inc., 1180 West Swedesford Road,
Building 2, Suite 300, Berwyn, Pennsylvania 19312 (telephone: 610-644-4796).
(vi)
<PAGE>
PROSPECTUS SUMMARY
The following summary does not purport to be complete and is qualified
in its entirety by the detailed information appearing elsewhere in this
Prospectus or incorporated by reference herein. For a discussion of certain
risk factors in connection with this offering, see "Risk Factors."
The Company
Renal Treatment Centers is a leading, high-quality provider of
dialysis treatments and ancillary services to patients suffering from chronic
kidney failure, primarily in its freestanding outpatient dialysis treatment
centers or in the patient's home. The Company currently operates 101 outpatient
dialysis centers in 21 states and the District of Columbia and one dialysis
center in the Republic of Argentina. As of July 31, 1996, the Company provided
dialysis services to approximately 7,000 patients. The Company also provided
ancillary medications and services to patients, the most significant of which is
the administration of erythropoietin ("EPO"), a protein used to treat anemia, a
complication experienced by most dialysis patients. In addition, the Company
provided inpatient acute dialysis services to 79 hospitals located in its
service areas as of July 31, 1996. The Company has expanded rapidly, primarily
through acquisitions, increasing the number of dialysis centers in its network
from 15 as of December 31, 1991 to its current level of 102 centers.
The Company was incorporated in Delaware in 1988. Its executive
offices are located at 1180 West Swedesford Road, Building 2, Suite 300, Berwyn,
Pennsylvania 19312, and its telephone number is (610) 644-4796.
The Offering
Securities Offered...... $125,000,000 aggregate principal amount of 5 5/8%
Convertible Subordinated Notes due 2006 (the "Notes")
and/or 3,654,971 shares of Common Stock issuable upon
conversion of the Notes.
Payment of Interest
on the Notes............ Interest is payable semi-annually on January 15 and
July 15 of each year at the rate of 5 5/8% per
annum commencing July 15, 1996. See "Description of
Notes -- General."
Maturity................ July 15, 2006, unless earlier redeemed, repurchased or
converted.
Conversion Rights....... The Notes are convertible, at the option of the holder,
at any time after August 11, 1996 through maturity,
unless previously redeemed or repurchased, into Common
Stock at a conversion price of $34.20 per share
(equivalent to a conversion rate of approximately 29.24
shares per $1,000 principal amount of Notes), subject
to certain adjustments. See "Description of Notes --
Conversion of Notes."
Optional Redemption
by the Company......... At any time on and after July 17, 1999, the Notes are
redeemable on at least 15 days' notice at the option of
the Company, in whole or in part, at the redemption
prices set forth in "Description of Notes," in each
case, together with accrued interest. See "Description
of Notes -- Optional Redemption by the Company."
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<PAGE>
Repurchase at Option of
Holders upon Change
in Control.............. In the event a Change in Control occurs, each holder
of Notes may require the Company to repurchase all or a
portion of such holder's Notes at 100% of the
principal amount thereof, together with accrued
interest to the repurchase date. If a Change in
Control were to occur, there can be no assurance that
the Company would have sufficient funds to pay the
repurchase price for all Notes tendered by the holders
thereof or that the Company would be permitted to
repurchase the Notes tendered under its existing credit
arrangements. See "Description of Notes -- Repurchase
at Option of Holders upon Change in Control" and "Risk
Factors -- Limitations on Repurchase of Notes upon
Change in Control."
Subordination........... The Notes are subordinated to all existing and future
Senior Indebtedness and are effectively subordinated to
all existing and future indebtedness and other
liabilities of the subsidiaries of the Company. As of
June 30, 1996, the Company had approximately $9 million
of indebtedness outstanding that constituted Senior
Indebtedness and the subsidiaries of the Company had
approximately $16 million of indebtedness and other
liabilities outstanding (excluding inter-company
payables) to which the Notes were effectively
subordinated. The Indenture (as defined) does not
prohibit or limit the incurrence of Senior Indebtedness
or the incurrence of other indebtedness and other
liabilities by the Company and its subsidiaries. See
"Description of Notes -- Subordination of Notes."
Use of Proceeds......... The Company will not receive any of the proceeds from
the resale of any of the Notes or the Common Stock
issuable upon conversion thereof. See "Use of
Proceeds."
Trading................. Prior to the resale thereof pursuant to this
Prospectus, each of the Notes was eligible for trading
in the Private Offerings, Resales and Trading through
Automated Linkages ("PORTAL") Market. Notes sold
pursuant to this Prospectus will no longer be eligible
for trading in the PORTAL Market. The shares of Common
Stock issuable upon conversion of the Notes have been
authorized for listing on the New York Stock Exchange
upon official notice of issuance. The Common Stock is
quoted on the New York Stock Exchange under the symbol
"RXT."
-2-
<PAGE>
RISK FACTORS
This Prospectus contains certain forward-looking statements within the
meaning of the Securities Act. Actual results could differ materially from
those projected in the forward-looking statements as a result of certain of the
risk factors set forth below and certain other factors set forth elsewhere in
this Prospectus. In addition to the other information contained and
incorporated by reference in this Prospectus, the following risk factors should
be considered carefully in evaluating the Company and its business before
purchasing the shares of Common Stock or the Notes offered hereby.
Dependence on Medicare, Medicaid and Other Sources of Reimbursement
The Company is reimbursed for dialysis services primarily at fixed
rates as established in advance under the Medicare End Stage Renal Disease
("ESRD") program. Under this program, once a patient becomes eligible for
Medicare reimbursement, Medicare is responsible for payment of approximately 80%
of the composite rate for dialysis treatment. The composite rate is determined
by the Health Care Financing Administration ("HCFA") for reimbursement of
Medicare patients. Approximately 65% and 58% of the Company's net patient
revenue during the year ended December 31, 1995 and the six months ended June
30, 1996, respectively, was funded by Medicare. Since 1983, numerous
Congressional actions have resulted in changes in the Medicare composite
reimbursement rate from a national average of $138 per treatment in 1983 to a
low of $125 per treatment on average in 1986 and to approximately $126 per
treatment on average at present. The Company is not able to predict whether
future rate changes will be made. Reductions in composite rates could have a
material adverse effect on the Company's revenues and net earnings.
Furthermore, increases in operating costs that are subject to inflation, such as
labor and supply costs, without a compensating increase in prescribed rates, may
adversely affect the Company's earnings in the future. The Company is also
unable to predict whether certain services, as to which the Company is currently
separately reimbursed, may in the future be included in the Medicare composite
rate.
Since June 1, 1989, the Medicare ESRD program has provided
reimbursement for the administration to dialysis patients of erythropoietin
("EPO"), a drug that is beneficial in the treatment of anemia, a complication
experienced by most dialysis patients. Most of the Company's dialysis patients
receive EPO. Revenues associated with the administration of EPO are significant
to the Company and the Company cannot predict future changes in the
reimbursement rate, the typical dosage per administration or the cost of EPO.
EPO is produced by only one manufacturer, and any interruption of supply could
adversely affect the Company's operations.
All of the states in which the Company currently operates dialysis
centers provide Medicaid (or comparable) benefits to qualified recipients to
supplement their Medicare entitlement. The Company estimates that approximately
4% of its net patient revenue during the fiscal year ended December 31, 1995 and
during the six months ended June 30, 1996 was funded by Medicaid or comparable
state programs. The Medicaid programs are subject to statutory and regulatory
changes, administrative rulings, interpretations of policy and governmental
funding restrictions, all of which may have the effect of decreasing program
payments, increasing costs or modifying the way the Company operates its
dialysis business.
Approximately 31% and 38% of the Company's net patient revenue during
the fiscal year ended December 31, 1995 and during the six months ended June 30,
1996, respectively, was from sources other than Medicare and Medicaid. These
sources include payments from third-party, non-government payors and payments
from hospitals with which the Company has agreements for the provision of
inpatient acute dialysis treatments, in each case at rates that generally exceed
the Medicare and Medicaid rates. Any restriction or reduction of the Company's
ability to charge for such services at rates in excess of those paid by Medicare
would adversely affect the Company's net patient revenue and net income. The
Company is unable to quantify or predict the degree, if any, of the risk of
reductions in payments under these various payment plans.
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<PAGE>
In March 1996, HCFA published a request for proposals from managed
care companies to arrange for the treatment of ESRD patients on a large scale
for the first time. Currently, managed care companies are only permitted to
arrange for the treatment of existing members in their programs who develop
ESRD. Formal bids were due on or before May 17, 1996. HCFA has announced its
intention to choose, from those companies submitting proposals, approximately
four managed care companies that will be allowed to recruit ESRD patients
beginning in mid-1997 in a test program. The results of the test program will
determine whether HCFA will open up the market to additional managed care
companies. The Company is unable to predict whether the test program will
result in large numbers of ESRD patients enrolling in managed care programs, or
the impact of the enrollment of ESRD patients in managed care programs on the
Company. The widespread introduction of managed care to dialysis services could
result in a reduction in the rates of reimbursement for the Company's services,
which could have a material adverse effect on the Company's revenues and net
earnings.
Operations Subject to, and Potential Effects of, Governmental Regulation
The Company is subject to extensive regulation by both the Federal
government and the states in which it conducts its business, including the
illegal remuneration provisions of the Social Security Act and similar state
laws, which impose civil and criminal sanctions on persons who solicit, offer,
receive or pay any remuneration, directly or indirectly, in consideration for
referring a patient for treatment that is paid for in whole or in part by
Medicare, Medicaid or similar state programs. In July 1991 and November 1992,
the Federal government published regulations that provide exceptions or safe
harbors for certain business transactions. Transactions that are structured
within the safe harbors are deemed not to violate the illegal remuneration
provisions. Transactions that do not satisfy all elements of a relevant safe
harbor do not necessarily violate the illegal remuneration statute, but may be
subject to greater scrutiny by enforcement agencies. The arrangements between
the Company and the physician directors of its dialysis centers ("Physician
Directors") have been structured to satisfy the elements of the applicable safe
harbors, but there can be no assurance that they will not be found to violate
the illegal remuneration provisions. However, certain of the Company's
Physician Directors from whom the Company has acquired dialysis centers have
received shares of the Company's Common Stock in full or partial consideration
for such acquisitions, and other Physician Directors may have purchased shares
of the Company's Common Stock in the open market, and such security ownership
does not fall within any of the safe harbors. Although the Company has never
been challenged under these statutes and believes it complies in all material
respects with these and all other applicable laws and regulations, there can be
no assurance that the Company will not be required to change its practices or
relationships with its Physician Directors or that the Company will not
experience material adverse effects as a result of any such challenge.
The Omnibus Budget Reconciliation Act of 1989 includes certain
provisions ("Stark I") that restrict physician referrals for clinical laboratory
services to entities with which a physician or an immediate family member has a
financial relationship. In August 1995, HCFA published regulations interpreting
Stark I. The regulations specifically provide that services furnished in an
ESRD facility that are included in the composite billing rate are excluded from
the coverage of Stark I. The Company believes that the language and legislative
history of Stark I indicate that Congress did not intend to include laboratory
services provided incidental to dialysis services within the Stark I
prohibition; however, laboratory services not included in the Medicare composite
rate could be included within the coverage of Stark I. Violations of Stark I
are punishable by civil penalties, which may include exclusion or suspension of
a provider from future participation in Medicare and Medicaid programs and
substantial fines. Due to the breadth of the statutory provisions, it is
possible that the Company's practices might be challenged under this law.
The Omnibus Budget Reconciliation Act of 1993 includes certain
provisions ("Stark II") that restrict physician referrals for certain designated
health services to entities with which a physician or an immediate family member
has a financial relationship. The Company believes that the language and
legislative history of Stark II indicate that Congress did not intend to include
dialysis services and the services and items provided incident to dialysis
services within the Stark II prohibitions; however, certain services, including
the provision
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<PAGE>
of, or arrangement and assumption of financial responsibility for, outpatient
prescription drugs, including EPO, and clinical laboratory services, could be
construed as designated health services within the meaning of Stark II.
Violations of Stark II are punishable by civil penalties, which may include
exclusion or suspension of the provider from future participation in Medicare
and Medicaid programs and substantial fines. Due to the breadth of the
statutory provisions and the absence of regulations or court decisions
addressing the specific arrangements by which the Company conducts its business,
it is possible that the Company's practices might be challenged under these
laws.
The Clinton administration's health care reform proposals, and other
health care reform proposals in general, have not addressed the Medicare ESRD
program. Nonetheless, health care reform in general, and Medicare reform in
particular, could bring radical change in the financing and regulation of the
health care business, and the Company is unable to predict the effect of such
changes on its future operations. Changes in reimbursement levels under
Medicare or Medicaid and changes in applicable governmental regulations could
significantly affect the Company's results of operations. It is uncertain at
this time what legislation on health care reform, if any, will ultimately be
implemented or whether other changes in the administration or interpretation of
governmental health care programs will occur. There can be no assurance that
future health care legislation or other changes in the administration or
interpretation of governmental health care programs will not have a material
adverse effect on the results of operations of the Company.
Risks Inherent in Growth Strategy
The Company's business strategy depends in significant part on its
ability to acquire or develop additional dialysis centers. This strategy is
dependent on the continued availability of suitable acquisition candidates and
subjects the Company to the risks inherent in assessing the value, strengths and
weaknesses of acquisition candidates, integrating and managing the operations of
acquired companies and identifying suitable locations for additional
facilities. The Company's growth is expected to place significant demands on
the Company's financial resources. The Company plans to borrow a significant
portion of the funds needed to acquire or develop centers in the future. While
the Company's credit facility with a consortium of bank lenders (the "Credit
Agreement") includes up to $100,000,000 for acquisition and development
activities and general working capital requirements, and the Company recently
completed the Debt Offering, a portion of the proceeds of which will be used to
fund future acquisitions, additional equity or debt financings are expected to
be required in order for the Company to fund its expansion plans. There can be
no assurance that the Company will continue to be able to obtain necessary
financing on acceptable terms for the acquisition or development of centers or
that the Company will otherwise be successful in acquiring or developing new
centers. No assurance can be given that the Company will make any additional
acquisitions or develop any additional centers.
Dependence on Physician Referrals
The Company's centers are dependent upon referrals of ESRD patients
for treatment by physicians specializing in nephrology and practicing in the
communities served by the Company's dialysis centers. As is customary in the
dialysis industry, at each center one or a few physicians account for all or a
significant portion of the patient referral base. The loss of one or more key
referring physicians at a particular center could have a material adverse impact
on the operations of that center and could adversely affect the Company's
overall operations. Financial relationships with physicians and other referral
sources are highly regulated. The illegal remuneration provisions of the Social
Security Act and similar state laws prohibit contracts for referrals.
Competition
The dialysis industry is fragmented and highly competitive,
particularly from the standpoint of competition for acquisition of existing
dialysis centers and developing relationships with referring physicians.
Competition for qualified physicians to act as Physician Directors is also high.
Also, a number of health care providers have entered or may decide to enter the
kidney dialysis business. Certain of the Company's
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<PAGE>
competitors have substantially greater financial resources than the Company and
may compete with the Company for acquisitions and for development of centers in
markets targeted by the Company. There can be no assurance that the Company can
continue to compete effectively with such providers. In addition, competition
has increased the cost of acquiring existing dialysis facilities and there can
be no assurance that these costs will not continue to increase as a result of
future industry consolidation. Furthermore, some of the Company's centers are
in urban areas where there are many competing facilities in close proximity.
The Company has also experienced competition from the establishment of
facilities by former Physician Directors and referring physicians.
Dependence on Key Personnel
The Company is dependent on certain key management personnel,
particularly its President and Chief Executive Officer, Robert L. Mayer, Jr.,
the loss of whom could have an adverse effect on the Company's business.
Moreover, the Company believes that its future success will be significantly
dependent on its ability to attract and retain qualified physicians to serve as
Physician Directors of its dialysis centers. In addition, the Company will need
to continue to attract and retain highly skilled nurses, competition for whom is
intense.
Volatility of Market Price of Common Stock and Notes
The trading price of the Common Stock is subject to significant
fluctuations in response to variations in quarterly operating results, general
conditions in the health care industry, changes in the regulatory environment
and other factors. Fluctuations in the trading price of the Common Stock,
changes in prevailing interest rates and changes in perceptions of the Company's
creditworthiness may adversely affect the trading price of the Notes.
Subordination; Holding Company Structure
The Notes are unsecured and subordinated in right of payment in full
to all existing and future Senior Indebtedness of the Company. As a result of
such subordination, in the event of any insolvency, liquidation or
reorganization of the Company or upon acceleration of the Notes due to an event
of default, the assets of the Company will be available to pay obligations on
the Notes and any other subordinated indebtedness of the Company only after all
Senior Indebtedness has been paid in full, and there may not be sufficient
assets remaining to pay amounts due on any or all of the Notes and any other
subordinated indebtedness of the Company then outstanding. The Notes are
effectively subordinated to the liabilities, including trade payables, of the
Company's subsidiaries. As of June 30, 1996, the total indebtedness and other
liabilities of the Company's subsidiaries were approximately $16 million. The
Indenture does not prohibit or limit the incurrence of Senior Indebtedness or
the incurrence of other indebtedness and other liabilities by the Company or its
subsidiaries, and the incurrence of additional indebtedness and other
liabilities by the Company or its subsidiaries could adversely affect the
Company's ability to pay its obligations on the Notes. As of June 30, 1996, the
Company had approximately $9 million of indebtedness outstanding that
constituted Senior Indebtedness. Under the Credit Agreement, the Company is
able to borrow up to $100 million for acquisitions and general corporate
purposes. Furthermore, all borrowings under the Credit Agreement will constitute
Senior Indebtedness.
Substantially all of the Company's operations are conducted through
its subsidiaries. The cash flow and consequent ability of the Company to
service debt, including the Notes, is dependent upon the earnings from the
business conducted by the Company through its subsidiaries and the distribution
of those earnings, or upon loans or other payments of funds, by those
subsidiaries to the Company. The subsidiaries have no obligation to pay any
amounts due pursuant to the Notes (which are obligations of the Company), and
their payment of dividends or distributions and making of loans or other
payments to the Company could be subject to statutory or contractual
restrictions, are contingent upon the subsidiaries' earnings and are subject to
various business considerations. See "Description of Notes -- Subordination of
Notes."
-6-
<PAGE>
Limitation on Repurchase of Notes upon Change in Control
Upon the occurrence of a Change in Control (as defined), each holder
of Notes may require the Company to repurchase all or a portion of such holder's
Notes. If a Change in Control were to occur, there can be no assurance that the
Company would have sufficient financial resources, or would be able to arrange
financing, to pay the repurchase price for all Notes tendered by holders
thereof. In addition, the terms of certain of the Company's existing debt
agreements prohibit the Company from purchasing any Notes and also identify
certain events that would constitute a Change in Control, as well as certain
other events with respect to the Company or certain of its subsidiaries, that
would constitute an event of default under such debt agreements. Any future
credit agreements or other agreements relating to other indebtedness (including
other Senior Indebtedness) to which the Company becomes a party may contain
similar restrictions and provisions. In the event a Change in Control occurs at
a time when the Company is prohibited from purchasing Notes, the Company could
seek the consent of its lenders to the purchase of the Notes or could attempt to
refinance the borrowings that contain such prohibition. If the Company does not
obtain such consent or repay such borrowing, the Company would remain prohibited
from purchasing Notes. In such case, the Company's failure to purchase
tendered Notes would constitute an Event of Default under the Indenture, which
would, in turn, constitute a further default under certain of the Company's
existing debt agreements and may constitute a default under the terms of other
indebtedness that the Company may enter into from time to time. In such
circumstances, the subordination provisions in the Indenture would prohibit
payments to the holders of the Notes. See "Description of Notes -- Repurchase
at Option of Holders upon Change in Control."
Absence of Public Market for the Notes
Prior to this offering, there has been no public trading market for
the Notes. Prior to the resale thereof pursuant to this Prospectus, each of the
Notes was eligible for trading in the PORTAL Market. Notes sold pursuant to
this Prospectus will no longer be eligible for trading in the PORTAL Market.
There can be no assurance that any public market for the Notes will develop or,
if one does develop, that it will be maintained. If an active market for the
Notes fails to develop or be sustained, the trading price of such Notes could be
adversely affected.
Shares Eligible for Future Sale
Of the 24,258,767 outstanding shares of Common Stock as of August 16,
1996, 21,552,311 shares were freely tradeable and 2,706,456 shares were
restricted and therefore not freely tradeable. Of the restricted shares,
2,206,321 shares had been registered under the Securities Act on shelf
registration statements and were eligible for sale in the public market as of
August 16, 1996. An additional 482,377 of the restricted shares are the subject
of certain registration rights, and the Company anticipates that such shares
will be registered under the Securities Act on a shelf registration statement
and become eligible for sale in the public market within 30 days after the date
of this Prospectus. The remaining 17,758 restricted shares and 1,740,488 shares
subject to exercise of outstanding options as of August 16, 1996 will become
eligible for future sale in the public market at prescribed times pursuant to
applicable regulations and, with respect to options, as they are exercised.
Sales of a substantial number of shares of Common Stock in the public market
following the offering made hereby could adversely affect prevailing market
prices of the Notes and the Common Stock.
Potential Anti-Takeover Effects of Delaware Law and By-law Provisions; Possible
Issuances of Preferred Stock
Certain provisions of Delaware law and the Company's By-Laws could
delay or impede the removal of incumbent directors and could make it more
difficult for a third party to acquire, or could discourage a third party from
attempting to acquire, control of the Company. Such provisions could limit the
price that certain investors might be willing to pay in the future for shares
of the Company's Common Stock. The Company's Board of Directors is divided into
three classes, with directors in each class elected for three-year terms. The
-7-
<PAGE>
By-Laws impose various procedural and other requirements that could make it more
difficult for stockholders to effect certain corporate actions. Shares of
preferred stock may be issued by the Board of Directors without stockholder
approval on such terms and conditions, and having such rights, privileges and
preferences, as the Board may determine. The rights of the holders of Common
Stock will be subject to, and may be adversely affected by, the rights of the
holders of any preferred stock that may be issued in the future. The Company has
no current plans to issue any shares of preferred stock.
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges is calculated by dividing the
sum of income before income taxes and fixed charges by fixed charges. Fixed
charges consist of interest expense, amortization of deferred debt issuance
costs and the portion of rent expense deemed to be representative of an interest
factor. Fixed charges for the years ended December 31, 1991 and 1992 also
included the amount of pre-tax earnings required to cover preferred stock
dividends. The Company's ratio of earnings to fixed charges for the years ended
December 31, 1991, 1992, 1993, 1994 and 1995 was 1.82x, 2.16x, 4.19x, 6.59x and
5.74x, respectively, and for the six months ended June 30, 1995 and 1996 was
4.84x and 5.75x, respectively.
USE OF PROCEEDS
The Notes and the shares of Common Stock offered by the Selling
Securityholders are not being sold by the Company, and the Company will not
receive any proceeds from the sale thereof.
SELLING SECURITYHOLDERS
The Notes were issued by the Company pursuant to a Purchase Agreement
dated June 6, 1996, and, except as set forth below, were acquired by the Selling
Securityholders offering Notes hereby in resale transactions pursuant to Rule
144A under the Securities Act, Regulation S under the Securities Act, Rule
501(a)(1), (2), (3) or (7) under the Securities Act, or from other holders
acquiring such Notes from prior holders thereof. The following table sets forth
information concerning the principal amount of Notes beneficially owned by each
Selling Securityholder and the number of shares of Common Stock issuable upon
conversion of the Notes (the "Conversion Shares") which may be offered from time
to time pursuant to this Prospectus. Other than their ownership of the
Company's securities, none of the Selling Securityholders has had any material
relationship with the Company within the past three years. The table has been
prepared based upon the information furnished to the Company by PNC Bank,
National Association, as trustee (the "Trustee") for the Notes, by the
Depository Trust Company and by or on behalf of the Selling Securityholders.
<TABLE>
<CAPTION>
Principal
Amount of Notes Number of
Beneficially Conversion Percentage
Owned Percentage Shares of Common
That May of Notes That May Stock Out-
Be Sold (1) Outstanding Be Sold (2) standing (3)
----------------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Name (1)
- --------
Bank of New York $ 5,420,000 4.3% 158,479 *
Bankers Trust Company $14,325,000 11.5% 418,859 1.7%
Bear Stearns Securities Corp. $ 5,200,000 4.2% 152,046 *
Bost & Co., nominee of $ 150,000 * 4,385 *
OCM Convertible Limited
Partnership
Boston Safe Deposit & Trust Co. $11,405,000 9.1% 333,479 1.4%
</TABLE>
-8-
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount of Notes Number of
Beneficially Conversion Percentage
Owned Percentage Shares of Common
That May of Notes That May Stock Out-
Name(1) Be Sold (1) Outstanding Be Sold (2) standing (3)
- ------- ----------------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Chase Manhattan Bank, N.A. Trust $365,000 * 10,672 *
Chase Manhattan Bank Trust Co. $1,250,000 1.0% 36,549 *
of California, N.A.
Chemical Bank $1,380,000 1.1% 40,350 *
Citibank, N.A. $5,035,000 4.0% 147,222 *
CoreStates Bank, N.A. $ 1,500,000 1.2% 43,859 *
Custodial Trust Company $ 1,880,000 1.5% 54,970 *
Deutsche Bank -- Custody Services $ 1,000,000 * 29,239 *
Firstar Trust Company $ 2,000,000 1.6% 58,479 *
Fleet Bank of Massachusetts, N.A. $ 95,000 * 2,777 *
How & Co., nominee of TCW $ 275,000 * 8,040 *
Asset Management Company as
Investment Advisor to the
North Dakota State Land Board
Lazard Freres & Co. $ 600,000 * 17,543 *
Lehman Brothers, Inc. $ 1,650,000 1.3% 48,245 *
Lehman Brothers International $11,250,000 9.0% 328,947 1.4%
(Europe)-Prime Broker (LBI)
Mercantile, Safe Deposit and Trust $ 2,340,000 1.9% 68,421 *
Company
Merrill Lynch - Debt Securities $ 7,515,000 6.0% 219,736 *
Merrill Lynch, Pierce, Fenner & $ 45,000 * 1,315 *
Smith Safekeeping
Morgan Guaranty Trust Co. of $ 2,150,000 1.7% 62,865 *
New York
Morgan (J.P.) Securities, Inc., WF $ 3,550,000 2.8% 103,801 *
Morgan Stanley & Co., Incorpo- $ 1,000,000 * 29,239 *
rated
NationsBank of Texas, N.A. $ 90,000 * 2,631 *
NatWest Securities Corporation #2 $ 2,000,000 1.6% 58,479 *
NBD Bank, N.A. $ 1,375,000 1.1% 40,204 *
</TABLE>
-9-
<PAGE>
<TABLE>
<CAPTION>
Principal
Amount of Notes Number of
Beneficially Conversion Percentage
Owned Percentage Shares of Common
That May of Notes That May Stock Out-
Name(1) Be Sold (1) Outstanding Be Sold (2) standing (3)
- ------- ----------------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Nomura International Trust $ 1,900,000 1.5% 55,555 *
Company Incorporated
Northern Trust Co. - Trust $ 1,510,000 1.2% 44,152 *
PaineWebber, Inc. $ 1,000,000 * 29,239 *
PNC Bank, National Association $ 590,000 * 17,251 *
Pondwave & Co., nominee of $ 2,150,000 1.7% 62,865 *
State of Connecticut
Republic New York Securities $ 500,000 * 14,619 *
Corp.
Salked & Co., nominee of Trust $ 885,000 * 25,877 *
Company of the West as Trustee
of the TCW Convertible Strategy
Fund
Sanwa Bank California $ 1,365,000 1.1% 39,912 *
Society National Bank $ 250,000 * 7,309 *
SSB-Custodian $23,030,000 18.4% 673,391 2.8%
The Chase Manhattan Bank, N.A. $ 800,000 * 23,391 *
The First National Bank of Boston $ 170,000 * 4,970 *
The First National Bank of Mary- $ 205,000 * 5,994 *
land
Trust Company Bank $ 50,000 * 1,461 *
UBS Securities Inc. $ 2,300,000 1.8% 67,251 *
Wachovia Bank North Carolina $ 150,000 * 4,385 *
Wagner, Stott & Co. $ 2,300,000 1.8% 67,251 *
- ----------------------------
</TABLE>
* Less than 1%.
(1) The information set forth herein is as of July 22, 1996.
(2) Assumes conversion of the full amount of Notes held by such holder at the
initial rate of $34.20 in principal amount of Notes per share of Common
Stock. Under the terms of the Indenture, fractional shares will not be
issued upon conversion of the Notes; cash will be paid in lieu of fractional
shares, if any.
(3) Computed in accordance with Rule 13d-3(d)(i) promulgated under the Exchange
Act based upon the 23,736,390 shares of Common Stock outstanding as of July
22, 1996, treating as outstanding the number
-10-
<PAGE>
of Conversion Shares shown as being issuable upon the assumed conversion by
the named holder of the full amount of such holder's Notes but not assuming
the conversion of the Notes of any other holders.
The information concerning the Selling Securityholders may change from time to
time and will be set forth in Supplements to this Prospectus. In addition, the
per share conversion price and, therefore, the number of shares of Common Stock
issuable upon conversion of the Notes is subject to adjustment under certain
circumstances. Accordingly, the aggregate principal amount of Notes and the
number of shares of Common Stock issuable upon conversion of the Notes may
increase or decrease. As of the date of this Prospectus, the aggregate
principal amount of Notes outstanding is $125,000,000, which may be converted
into 3,654,971 shares of Common Stock.
The Company and the Selling Securityholders have agreed to indemnify each
other against certain liabilities arising under the Securities Act. The Company
has agreed to pay all expenses incident to the offer and sale of the Notes and
shares of Common Stock to the public pursuant to this Prospectus other than
selling commissions and fees.
Because the Selling Securityholders may offer all or some of the Notes and
shares of Common Stock issued upon conversion thereof pursuant to the offering
contemplated by this Prospectus, and to the Company's knowledge there are
currently no agreements, arrangements or understandings with respect to the sale
of any of the Notes or shares of Common Stock that may be held by the Selling
Securityholders after completion of this offering, no estimate can be given as
to the principal amount of Notes or shares of Common Stock that will be held by
the Selling Securityholders after completion of this offering. See "Plan of
Distribution."
PLAN OF DISTRIBUTION
This Prospectus relates to the resale of $125,000,000 of Notes issued in a
private placement on June 12, 1996 and the resale of up to 3,654,971 shares of
Common Stock, which are initially issuable upon conversion of Notes by any
holders of Notes that did not purchase the Notes under the Registration
Statement (of which this Prospectus is a part). The Registration Statement (of
which this Prospectus is a part) does not cover the issuance of shares of Common
Stock upon conversion of the Notes into shares of Common Stock.
The Company will not receive any of the proceeds from the offering of Notes
and the shares of Common Stock issuable upon conversion thereof by the Selling
Securityholders that are sold pursuant to the Registration Statement (of which
this Prospectus is a part). The Company has been advised by the Selling
Securityholders that the Selling Securityholders may sell all or a portion of
the Notes and shares of Common Stock beneficially owned by them and which may be
offered hereby from time to time on any exchange or market on which the
securities are listed or quoted, as applicable, on terms to be determined at the
times of such sales. The Selling Securityholders may also make private sales
directly or through a broker or brokers. Alternatively, any of the Selling
Securityholders may from time to time offer the Notes or shares of Common Stock
which may be offered hereby and beneficially owned by them through underwriters,
dealers or agents, who may receive compensation in the form of underwriting
discounts, commissions or concessions from the Selling Securityholders and the
purchasers of the Notes or shares of Common Stock for whom they may act as
agent. Such dealers may include the initial purchasers of the Notes, who may
perform investment banking or other services for or engage in other transactions
with the Company from time to time in the future.
To the extent required, the aggregate principal amount of Notes and number of
shares of Common Stock to be sold hereby, the names of the Selling
Securityholders, the purchase price, the name of any such agent, dealer or
underwriter and any applicable commissions, discounts or other terms
constituting compensation with respect to a particular offer will be set forth
in an accompanying Prospectus Supplement. The aggregate proceeds to the Selling
Securityholders from the sale of the Notes or shares of Common Stock offered by
them hereby will be the purchase price of such Notes or shares of Common Stock
less discounts and commissions, if any.
-11-
<PAGE>
The Notes and the shares of Common Stock which may be offered hereby may be
sold from time to time in one or more transactions at fixed offering prices,
which may be changed, or at varying prices determined at the time of sale or at
negotiated prices. Such prices will be determined by the holders of such
securities or by agreement between such holders and underwriters or dealers who
may receive fees or commissions in connection therewith.
The outstanding Common Stock is listed for trading on the New York Stock
Exchange, and the shares of Common Stock issuable upon conversion of the Notes
have been authorized for listing on the New York Stock Exchange upon official
notice of issuance. There is no assurance as to the development or liquidity of
any trading market that may develop for the Notes.
In order to comply with the securities laws of certain states, if applicable,
the Notes and shares of Common Stock offered hereby will be sold in such
jurisdictions only through registered or licensed brokers or dealers. In
addition, in certain states the Notes and shares of Common Stock offered hereby
may not be sold unless they have been registered or qualified for sale in the
applicable state or an exemption from the registration or qualification
requirement is available and compliance with same is effected.
The Selling Securityholders and any brokers, dealers, agents or underwriters
that participate with the Selling Securityholders in the distribution of the
Notes or shares of Common Stock offered hereby may be deemed to be
"underwriters" within the meaning of the Securities Act, in which event any
commissions or discounts received by such brokers, dealers, agents or
underwriters and any profit on the resale of the Notes or shares of Common Stock
offered hereby and purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
The Company and the Selling Securityholders have agreed to indemnify each
other against certain liabilities arising under the Securities Act. The Company
has agreed to pay all expenses incident to the offer and sale of the Notes and
Common Stock offered hereby by the Selling Securityholders to the public, other
than selling commissions and fees.
The Registration Statement does not cover the issuance of shares of Common
Stock upon conversion of the Notes into shares of Common Stock.
DESCRIPTION OF NOTES
The Notes were issued under an indenture dated as of June 12, 1996 (the
"Indenture"), between the Company and the Trustee. This Prospectus is being
filed pursuant to a Registration Rights Agreement dated as of June 12, 1996
between the Company and the initial purchasers of the Notes (the "Registration
Rights Agreement"). Copies of the Indenture and the Registration Rights
Agreement are available from the Trustee upon request by a registered holder of
Notes. The following summaries of certain provisions of the Notes, the
Indenture and the Registration Rights Agreement do not purport to be complete
and are subject to, and are qualified in their entirety by reference to, all of
the provisions of the Notes, the Indenture and the Registration Rights
Agreement, including the definitions therein of certain terms which are not
otherwise defined in this Prospectus. Wherever particular provisions or defined
terms of the Indenture (or the form of Note which is a part thereof) or the
Registration Rights Agreement are referred to, such provisions or defined terms
are incorporated herein by reference.
General
The Notes are unsecured general obligations of the Company subordinate in
right of payment to certain other obligations of the Company as described under
"-- Subordination of Notes" and convertible into Common Stock as described under
"-- Conversion of Notes." The Notes are limited to $125,000,000 aggregate
principal amount, are issued only in denominations of $1,000 or any multiple
thereof and will mature on July 15, 2006,
-12-
<PAGE>
unless earlier redeemed at the option of the Company or repurchased by the
Company at the option of the holder upon a Change in Control.
The Indenture does not contain any financial covenants or restrictions on the
payment of dividends, the incurrence of Senior Indebtedness or the issuance or
the repurchase of securities of the Company. The Indenture contains no
covenants or other provisions to afford protection to holders of Notes in the
event of a highly leveraged transaction or a change in control of the Company
except to the extent described under "--Repurchase at Option of Holders upon
Change in Control."
The Notes bear interest at the annual rate of 5 5/8% from June 12, 1996,
payable semi-annually on January 15 and July 15, commencing July 15, 1996, to
holders of record at the close of business on the preceding January 1 and July
1, respectively (other than with respect to a Note or portion thereof called for
redemption on a redemption date, or repurchased in connection with a Change in
Control on a Repurchase Date (as defined below) during the period from the
record date to (but excluding) the next succeeding interest payment date (in
which case accrued interest shall be payable to the extent required to the
holder of the Note or portion thereof redeemed or repurchased) or converted
after the record date and before the next succeeding interest payment date
except to the extent that, at the time such Note or portion thereof is submitted
for conversion, such Note or portion thereof was required to be accompanied by
funds equal to interest payable on such succeeding interest payment date on the
principal amount so converted; see "-- Conversion of Notes" below). Interest
may, at the Company's option, be paid by check mailed to such holders, provided
that a holder of Notes with an aggregate principal amount equal to or in excess
of $5,000,000 will be paid by wire transfer in immediately available funds at
the election of such holder. Interest will be computed on the basis of a 360-
day year composed of twelve 30-day months.
Principal and premium, if any, will be payable, and the Notes may be presented
for conversion, registration of transfer and exchange, without service charge,
at the office of the Company maintained for such purpose in New York, New York,
which is an office or agency of the Trustee.
No Legends
Notes and Common Stock sold hereunder will not bear legends restricting the
transferability thereof.
Conversion of Notes
The holders of Notes will be entitled at any time after August 11, 1996
through the close of business on the final maturity date of the Notes, subject
to prior redemption or repurchase, to convert any Notes or portions thereof (in
denominations of $1,000 or multiples thereof) into Common Stock of the Company,
at the initial conversion price of $34.20 per share, subject to adjustment as
described below. Except as described below, no adjustment will be made on
conversion of any Notes for interest accrued thereon or for dividends on any
Common Stock issued upon conversion of the Notes. If any Notes not called for
redemption are converted after a record date for the payment of interest and
prior to the next succeeding interest payment date, such Notes must be
accompanied by funds equal to the interest payable on such succeeding interest
payment date on the principal amount so converted. The Company is not required
to issue fractional shares of Common Stock upon conversion of Notes and, in lieu
thereof, will pay a cash adjustment based upon the market price of Common Stock
on the last Trading Day (as defined) prior to the date of conversion. In the
case of Notes called for redemption, conversion rights will expire at the close
of business on the business day preceding the date fixed for redemption unless
the Company defaults in payment of the redemption price. A Note in respect of
which a holder is exercising its option to require repurchase upon a Change in
Control may be converted only if such holder withdraws its election to exercise
its option in accordance with the terms of the Indenture.
The initial conversion price of $34.20 per share of Common Stock is subject to
adjustment (under formulae set forth in the Indenture) in certain events,
including: (i) the issuance of Common Stock as a dividend
-13-
<PAGE>
or distribution on Common Stock of the Company; (ii) certain subdivisions and
combinations of the Common Stock; (iii) the issuance to all holders of Common
Stock of certain rights or warrants to purchase Common Stock; (iv) the
distribution to all holders of Common Stock of shares of capital stock of the
Company (other than Common Stock) or evidences of indebtedness of the Company or
assets (including securities, but excluding those rights, warrants, dividends
and distributions referred to above and dividends and distributions in
connection with the liquidation, dissolution or winding up of the Company or
paid in cash); (v) dividends or other distributions consisting exclusively of
cash (excluding any cash portion of distributions referred to in clause (iv) to
all holders of Common Stock to the extent such distributions, combined with (A)
all such all-cash distributions made within the preceding 12 months in respect
of which no adjustment has been made plus (B) any cash and the fair market value
of other consideration payable in respect of any tender offers by the Company
for Common Stock concluded within the preceding 12 months in respect of which no
adjustment has been made, exceeds 10% of the Company's market capitalization
(being the product of the then current market price of the Common Stock times
the number of shares of Common Stock then outstanding) on the record date for
such distribution; (vi) the purchase of Common Stock pursuant to a tender offer
made by the Company to the extent that the aggregate consideration, together
with (X) any cash and the fair market value of any other consideration payable
in any other tender offer expiring within the 12 months preceding such tender
offer in respect of which no adjustment has been made plus (Y) the aggregate
amount of any such all-cash distributions referred to in clause (v) above to all
holders of Common Stock within the 12 months preceding the expiration of such
tender offer in respect of which no adjustments have been made, exceeds 10% of
the Company's market capitalization on the expiration of such tender offer; and
(vii) payment in respect of a tender offer or exchange offer by a person other
than the Company or any subsidiary of the Company in which, as of the closing
date of the offer, the Board of Directors is not recommending rejection of the
offer. If an adjustment is required to be made as set forth in clause (v) above
as a result of a distribution that is not a quarterly dividend, such adjustment
would be based upon the full amount of the distribution. The adjustment
referred to in clause (vii) above will only be made if the tender offer or
exchange offer is for an amount which increases that person's ownership of
Common Stock to more than 25% of the total shares of Common Stock outstanding
and, if the cash and value of any other consideration included in such payment
per share of Common Stock, exceeds the Current Market Price per share of Common
Stock on the business day next succeeding the last date on which tenders or
exchanges may be made pursuant to such tender or exchange offer. The adjustment
referred to in clause (vii) above will not be made, however, if, as of the
closing of the offer, the offering documents with respect to such offer disclose
a plan or an intention to cause the Company to engage in a consolidation or
merger of the Company or a sale of all or substantially all of the Company's
assets.
In addition, the Indenture provides that if the Company implements a
stockholder rights plan, such rights plan must provide that upon conversion of
the Notes the holders will receive, in addition to the Common Stock issuable
upon such conversion, the rights issued under such plan (notwithstanding the
occurrence of an event causing such rights to separate from the Common Stock at
or prior to the time of conversion).
In the case of (i) any reclassification or change of the Common Stock or (ii)
a consolidation, merger or combination involving the Company or a sale or
conveyance to another person of the property and assets of the Company as an
entirety or substantially as an entirety, in each case as a result of which
holders of Common Stock shall be entitled to receive stock, other securities,
other property or assets (including cash) with respect to or in exchange for
such Common Stock, the holders of the Notes then outstanding will be entitled
thereafter to convert such Notes into the kind and amount of shares of stock,
other securities or other property or assets which they would have owned or been
entitled to receive upon such reclassification, change, consolidation, merger,
combination, sale or conveyance had such Notes been converted into Common Stock
immediately prior to such reclassification, change, consolidation, merger,
combination, sale or conveyance assuming that a holder of Notes would not have
exercised any rights of election as to the stock, other securities or other
property or assets receivable in connection therewith.
-14-
<PAGE>
In the event of a taxable distribution to holders of Common Stock (or other
transaction) which results in any adjustment of the conversion price, the
holders of Notes may, in certain circumstances, be deemed to have received a
distribution subject to United States income tax as a dividend; in certain other
circumstances, the absence of such an adjustment may result in a taxable
dividend to the holders of Common Stock. See "Certain Federal Income Tax
Considerations."
The Company from time to time may to the extent permitted by law reduce the
conversion price by any amount for any period of at least 20 days, in which case
the Company shall give at least 15 days' notice of such reduction, if the Board
of Directors has made a determination that such reduction would be in the best
interests of the Company, which determination shall be conclusive. The Company
may, at its option, make such reductions in the conversion price, in addition to
those set forth above, as the Board of Directors deems advisable to avoid or
diminish any income tax to holders of Common Stock resulting from any dividend
or distribution of stock (or rights to acquire stock) or from any event treated
as such for income tax purposes. See "Certain Federal Income Tax
Considerations."
No adjustment in the conversion price will be required unless such adjustment
would require a change of at least 1% in the conversion price then in effect;
provided that any adjustment that would otherwise be required to be made shall
be carried forward and taken into account in any subsequent adjustment. Except
as stated above, the conversion price will not be adjusted for the issuance of
Common Stock or any securities convertible into or exchangeable for Common Stock
or carrying the right to purchase any of the foregoing.
Optional Redemption by the Company
The Notes are not entitled to any sinking fund. At any time on or after July
17, 1999, all or any part of the Notes will be redeemable at the Company's
option on at least 15 and not more than 60 days' notice as a whole or, from time
to time, in part at the following prices (expressed as percentages of the
principal amount), together with accrued interest to, but excluding, the date
fixed for redemption.
If redeemed during the 12-month period beginning July 15:
<TABLE>
<CAPTION>
Redemption
Year Price
---- -----
<S> <C>
1999............................................ 103.94%
2000............................................ 103.38
2001............................................ 102.81
2002............................................ 102.25
2003............................................ 101.69
2004............................................ 101.13
2005............................................ 100.56
</TABLE>
and 100% at July 15, 2006; provided that any semi-annual payment of interest
becoming due on the date fixed for redemption shall be payable to the holders of
record on the relevant record date of the Notes being redeemed.
If fewer than all the Notes are to be redeemed, the Trustee will
select the Notes to be redeemed by lot or, in its discretion, on a pro rata
basis. If any Note is to be redeemed in part only, a new Note or Notes in
principal amount equal to the unredeemed principal portion thereof will be
issued. If a portion of a holder's Notes are selected for partial redemption
and such holder converts a portion of such Notes, such converted portion shall
be deemed to be taken from the portion selected for redemption.
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Repurchase at Option of Holders upon Change in Control
The Indenture provides that if a Change in Control occurs, each holder
of Notes shall have the right to require the Company to repurchase all of such
holder's Notes, or any portion of the principal amount thereof that is an
integral multiple of $1,000, on the date (the "Repurchase Date") that is 30 days
after the date of the Company Notice (as defined), for cash at a price equal to
100% of the principal amount thereof (the "Repurchase Price") plus accrued and
unpaid interest to, but excluding, the Repurchase Date; provided that any semi-
annual payment of interest becoming due on the Repurchase Date shall be payable
to the holders of record on the relevant record date of the Notes being
repurchased.
Within 15 days after the occurrence of a Change in Control, the
Company or, at the Company's request, the Trustee is obligated to give to all
holders of record of Notes a notice (the "Company Notice") of the occurrence of
such Change in Control and of the repurchase right arising as a result thereof.
The Company must also deliver a copy of the Company Notice to the Trustee. To
exercise the repurchase right, a holder of such Notes must deliver to the
Trustee on or before the 30th day after the date of the Company Notice written
notice of the holder's exercise of such right, together with the Notes with
respect to which the right is being exercised, duly endorsed for transfer to the
Company.
A "Change in Control" will be deemed to have occurred at such time
after the original issuance of the Notes as:
(i) any Person (as defined) (including any syndicate or group deemed
to be a "person" under Section 13(d)(3) of the Exchange Act), other than the
Company, any subsidiary of the Company, or any employee benefit plan of the
Company or any such subsidiary, is or becomes the beneficial owner, directly or
indirectly, through a purchase or other acquisition transaction or series of
transactions (other than a merger or consolidation involving the Company), of
shares of capital stock of the Company entitling such Person to exercise in
excess of 50% of the total voting power of all shares of capital stock of the
Company entitled to vote generally in the election of directors; or
(ii) there occurs any consolidation of the Company with, or merger of
the Company into, any other Person, any merger of another Person into the
Company, or any sale or transfer of all or substantially all of the assets of
the Company to another Person (other than (a) any such transaction pursuant to
which the holders of the Common Stock immediately prior to such transaction
have, directly or indirectly, shares of capital stock of the continuing or
surviving corporation immediately after such transaction which entitle such
holders to exercise in excess of 50% of the total voting power of all shares of
capital stock of the continuing or surviving corporation entitled to vote
generally in the election of directors and (b) any merger (1) which does not
result in any reclassification, conversion, exchange or cancellation of
outstanding shares of Common Stock or (2) which is effected solely to change the
jurisdiction of incorporation of the Company and results in a reclassification,
conversion or exchange of outstanding shares of Common Stock solely into shares
of common stock);
provided, however, that Change in Control shall not be deemed to have occurred
if either (a) the closing price per share of the Common Stock for any 10 Trading
Days within the period of 20 consecutive Trading Days ending immediately before
the Change in Control shall equal or exceed 105% of the conversion price in
effect on each such Trading Day, or (b) (i) at least 90% of the consideration
(excluding cash payments for fractional shares) in the transaction or
transactions constituting the Change in Control consists of shares of common
stock with full voting rights traded on a national securities exchange or quoted
on the Nasdaq National Market (or which will be so traded or quoted when issued
or exchanged in connection with such Change in Control) (such securities being
referred to as "Publicly Traded Securities") and as a result of such transaction
or transactions such Notes become convertible solely into such Publicly Traded
Securities and (ii) the consideration in the transaction or transactions
constituting the Change in Control consists of cash, Publicly Traded Securities
or a combination of cash and Publicly Traded Securities with an aggregate fair
market value (which, in the case
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of Publicly Traded Securities, shall be equal to the average closing price of
such Publicly Traded Securities during the ten consecutive Trading Days
commencing with the sixth Trading Day following consummation of the transaction
or transactions constituting the Change in Control) is at least 105% of the
Conversion Price in effect on the date immediately preceding the date of
consummation of such Change in Control. The term "beneficial owner" shall be
determined in accordance with Rule 13d-3 promulgated by the Commission under the
Exchange Act.
To the extent applicable, the Company will comply with the provisions
of Rule 13e-4 or any other tender offer rules, and will file a Schedule 13E-4 or
any other schedule required under such rules, in connection with any offer by
the Company to repurchase Notes at the option of the holders thereof upon a
Change in Control.
The Change in Control feature of the Notes may in certain
circumstances make more difficult or discourage a takeover of the Company and,
thus, the removal of incumbent management. The repurchase right is not the
result of management's knowledge of any effort to accumulate any Common Stock or
to obtain control of the Company by means of a merger, tender offer,
solicitation, or otherwise, or part of a plan by management to adopt a series of
anti-takeover provisions. Instead, this right is the result of negotiations
between the Company and the initial purchasers of the Notes.
The foregoing provisions would not necessarily afford holders of the
Notes protection in the event of a highly leveraged transaction, certain changes
in control of the Company or other transactions involving the Company that may
adversely affect such holders.
The Company's ability to repurchase Notes upon the occurrence of a
Change in Control is subject to limitations. If a Change in Control were to
occur, there can be no assurance that the Company would have sufficient
financial resources, or would be able to arrange financing, to pay the
repurchase price for all Notes tendered by holders thereof. In addition, the
terms of certain of the Company's existing debt agreements prohibit the Company
from purchasing any Notes and also identify certain events that would constitute
a Change in Control, as well as certain other events with respect to the Company
or certain of its subsidiaries, which would constitute an event of default under
such debt agreements. Any future credit agreements or other agreements relating
to other indebtedness (including other Senior Indebtedness) to which the Company
becomes a party may contain similar restrictions and provisions. In the event a
Change in Control occurs at a time when the Company is prohibited from
repurchasing Notes, the Company could seek the consent of its lenders to
repurchase the Notes or could attempt to refinance the borrowings that contain
such prohibition. If the Company does not obtain such a consent or repay such
borrowings, the Company would remain prohibited from repurchasing Notes. Any
failure by the Company to repurchase the Notes when required following a Change
in Control would result in an Event of Default under the Indenture whether or
not such repurchase is permitted by the subordination provisions of the
Indenture. Any such default may, in turn, cause a default under Senior
Indebtedness of the Company. Moreover, the occurrence of a Change in Control
may cause an event of default under Senior Indebtedness of the Company. As a
result, in each case, any repurchase of the Notes would, absent a waiver, be
prohibited under the subordination provisions of the Indenture until the Senior
Indebtedness is paid in full. See "-- Subordination of Notes" below and "Risk
Factors -- Subordination; Holding Company Structure."
Subordination of Notes
The indebtedness evidenced by the Notes is subordinated to the extent
provided in the Indenture to the prior payment in full of all Senior
Indebtedness. Upon any distribution of assets of the Company upon any
dissolution, winding up, liquidation or reorganization, the payment of the
principal of, or premium, if any, and interest on the Notes is to be
subordinated to the extent provided in the Indenture in right of payment to the
prior payment in full in cash of all Senior Indebtedness. In the event of any
acceleration of the Notes because of an Event of Default (as defined in the
Indenture), the holders of any Senior Indebtedness then outstanding
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would be entitled to payment in full in cash of all obligations in respect of
such Senior Indebtedness before the holders of the Notes are entitled to receive
any payment or distribution in respect thereof. The Indenture will require that
the Company promptly notify holders of Senior Indebtedness if payment of the
Notes is accelerated because of an Event of Default.
The Company also may not make any payment upon or in respect of the
Notes if (i) a default in the payment of the principal of, premium, if any,
interest, rent or other obligations in respect of Senior Indebtedness occurs and
is continuing beyond any applicable period of grace or (ii) any other default
occurs and is continuing with respect to Designated Senior Indebtedness (as
defined) that permits holders of the Designated Senior Indebtedness as to which
such default relates to accelerate its maturity and the Trustee receives a
notice of such default (a "Payment Blockage Notice") from the Company or other
person permitted to give such notice under the Indenture. Payments on the Notes
may and shall be resumed (a) in case of a payment default, upon the date on
which such default is cured or waived and (b) in case of a nonpayment default,
the earlier of the date on which such nonpayment default is cured or waived or
179 days after the date on which the applicable Payment Blockage Notice is
received if the maturity of such Designated Senior Indebtedness has not been
accelerated. No new period of payment blockage may be commenced pursuant to a
Payment Blockage Notice unless and until (i) 365 days have elapsed since the
initial effectiveness of the immediately prior Payment Blockage Notice and (ii)
all scheduled payments of principal, premium, if any, and interest on the Notes
that have come due have been paid in full in cash. No nonpayment default that
existed or was continuing on the date of delivery of any Payment Blockage Notice
to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage
Notice.
By reason of the subordination provisions described above, in the
event of the Company's bankruptcy, dissolution or reorganization, holders of
Senior Indebtedness may receive more, ratably, and holders of the Notes may
receive less, ratably, than the other creditors of the Company. Such
subordination will not prevent the occurrence of any Event of Default under the
Indenture.
The term "Senior Indebtedness" means the principal of, premium, if
any, interest (including all interest accruing subsequent to the commencement of
any bankruptcy or similar proceeding, whether or not a claim for post-petition
interest is allowable as a claim in any such proceeding) and rent payable on or
in connection with, and all fees, costs, expenses and other amounts accrued or
due on or in connection with, Indebtedness (as defined) of the Company, whether
outstanding on the date of the Indenture or thereafter created, incurred,
assumed, guaranteed or in effect guaranteed by the Company (including all
deferrals, renewals, extensions or refundings of, or amendments, modifications
or supplements to, the foregoing), unless in the case of any particular
Indebtedness the instrument creating or evidencing the same or the assumption or
guarantee thereof expressly provides that such Indebtedness shall not be senior
in right of payment to the Notes or expressly provides that such Indebtedness is
"pari passu" or "junior" to the Notes. Notwithstanding the foregoing, the term
Senior Indebtedness shall not include any Indebtedness of the Company to any
Subsidiary (as defined in the Indenture) of the Company. The term
"Indebtedness" means, with respect to any Person (as defined in the Indenture),
and without duplication, (a) all indebtedness, obligations and other liabilities
(contingent or otherwise) of such Person for borrowed money (including
obligations of such Person in respect of overdrafts, foreign exchange contracts,
currency exchange agreements, interest rate protection agreements, and any loans
or advances from banks, whether or not evidenced by notes or similar
instruments) or evidenced by bonds, debentures, notes or similar instruments
(whether or not the recourse of the lender is to the whole of the assets of such
Person or to only a portion thereof) (other than any account payable or other
accrued current liability or obligation incurred in the ordinary course of
business in connection with the obtaining of materials or services), (b) all
reimbursement obligations and other liabilities (contingent or otherwise) of
such Person with respect to letters of credit, bank guarantees or bankers'
acceptances, (c) all obligations and liabilities (contingent or otherwise) in
respect of leases of such Person required, in conformity with generally accepted
accounting principles, to be accounted for as capitalized lease obligations on
the balance sheet of such Person and all obligations and other liabilities
(contingent or otherwise) under any lease or related document (including a
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purchase agreement) in connection with the lease of real property which provides
that such Person is contractually obligated to purchase or cause a third party
to purchase the leased property and thereby guarantee a minimum residual value
of the leased property to the lessor and the obligations of such Person under
such lease or related document to purchase or to cause a third party to purchase
such leased property, (d) all obligations of such Person (contingent or
otherwise) with respect to an interest rate or other swap, cap or collar
agreement or other similar instrument or agreement or foreign currency hedge,
exchange, purchase or similar instrument or agreement, (e) all direct or
indirect guaranties or similar agreements by such Person in respect of, and
obligations or liabilities (contingent or otherwise) of such Person to purchase
or otherwise acquire or otherwise assure a creditor against loss in respect of,
indebtedness, obligations or liabilities of another Person of the kind described
in clauses (a) through (d), (f) any indebtedness or other obligations described
in clauses (a) through (d) secured by any mortgage, pledge, lien or other
encumbrance existing on property which is owned or held by such Person,
regardless of whether the indebtedness or other obligation secured thereby shall
have been assumed by such Person and (g) any and all deferrals, renewals,
extensions and refundings of, or amendments, modifications or supplements to,
any indebtedness, obligation or liability of the kind described in clauses (a)
through (f). The term "Designated Senior Indebtedness" means Indebtedness under
the Credit Agreement (as defined in the Indenture), and any particular Senior
Indebtedness in which the instrument creating or evidencing the same or the
assumption or guarantee thereof (or related agreements or documents to which the
Company is a party) expressly provides that such Senior Indebtedness shall be
"Designated Senior Indebtedness" for purposes of the Indenture (provided that
such instrument, agreement or other document may place limitations and
conditions on the right of such Senior Indebtedness to exercise the rights of
Designated Senior Indebtedness).
The Notes are obligations exclusively of the Company. The Company is
a holding company and accordingly substantially all of its operations are
conducted through its subsidiaries. As a result, the cash flow and the
consequent ability of the Company to service debt, including the Notes, of the
Company is dependent upon the earnings of its subsidiaries and the distribution
of those earnings, or upon loans or other payments of funds by those
subsidiaries, to the Company. Such subsidiaries are separate and distinct legal
entities and have no obligation, contingent or otherwise, to pay any amounts due
pursuant to the Notes or to make any funds available therefor, whether by
dividends, distributions, loans or other payments. In addition, the payment of
dividends or distributions and the making of loans and advances to the Company
by its subsidiaries could be subject to statutory or contractual restrictions,
are contingent upon the earnings of those subsidiaries and are subject to
various business considerations.
Any right of the Company to receive any assets of any of its
subsidiaries upon their liquidation or reorganization (and the consequent right
of the holders of the Notes to participate in those assets) will be effectively
subordinated to the claims of that subsidiary's creditors (including trade
creditors), except to the extent that the Company is itself recognized as a
creditor of such subsidiary, in which case the claims of the Company would still
be subordinate to any security interest in the assets of such subsidiary and any
indebtedness of such subsidiary senior to that held by the Company.
As of June 30, 1996, the Company had approximately $9 million of
indebtedness outstanding that constituted Senior Indebtedness. As of June 30,
1996, the subsidiaries of the Company had approximately $16 million of
outstanding indebtedness and other liabilities (excluding inter-company
payables) to which the Notes were effectively subordinated. The Indenture does
not limit the amount of additional indebtedness, including Senior Indebtedness,
which the Company can create, incur, assume or guarantee, nor does the Indenture
limit the amount of indebtedness which any subsidiary can create, incur, assume
or guarantee.
In the event that, notwithstanding the foregoing, the Trustee or any
holder of Notes receives any payment or distribution of assets of the Company of
any kind in contravention of any of the subordination provisions of the
Indenture, whether in cash, property or securities, including, without
limitation, by way of set-off or otherwise, in respect of the Notes before all
Senior Indebtedness is paid in full, then such payment
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or distribution will be held by the recipient in trust for the benefit of
holders of Senior Indebtedness or their representative or representatives to the
extent necessary to make payment in full of all Senior Indebtedness remaining
unpaid, after giving effect to any concurrent payment or distribution, or
provision therefor, to or for the holders of Senior Indebtedness.
The Company is obligated to pay reasonable compensation to the Trustee
and to indemnify the Trustee against any losses, liabilities or expenses
incurred by it in connection with its duties relating to the Notes. The
Trustee's claims for such payments will be senior to those of holders of the
Notes in respect of all funds collected or held by the Trustee.
Events of Default and Remedies
An Event of Default is defined in the Indenture as being: default in
payment of the principal of or premium, if any, on the Notes; default for 30
days in payment of any installment of interest on the Notes; default by the
Company for 60 days after notice in the observance or performance of any other
covenants in the Indenture; failure of the Company to pay any payment at
maturity, including any applicable grace period, in respect of indebtedness for
borrowed money of the Company, which payment is in an amount in excess of $5
million, and continuance of such failure for 30 days after notice; default by
the Company with respect to any indebtedness for borrowed money of the Company,
which default results in acceleration of any such indebtedness which is in an
amount of in excess of $5 million without such indebtedness having been paid or
discharged, such default having been cured or waived or such acceleration having
been rescinded or annulled for 30 days after notice; or certain events involving
bankruptcy, insolvency or reorganization of the Company. The Indenture provides
that the Trustee may withhold notice to the holders of Notes of any default
(except in payment of principal, premium, if any, or interest with respect to
the Notes) if the Trustee considers it in the interest of the holders of the
Notes to do so.
The Indenture provides that if an Event of Default shall have occurred
and be continuing, the Trustee or the holders of not less than 25% in principal
amount of the Notes then outstanding may declare the principal of and accrued
interest on the Notes to be due and payable immediately, but if the Company
shall cure all defaults (except the nonpayment of principal of, premium, if any,
and interest on any of the Notes which shall have become due by acceleration)
and certain other conditions are met, with certain exceptions, such declaration
may be annulled and past defaults may be waived by the holders of a majority of
the principal amount of the Notes then outstanding. In the case of certain
events of bankruptcy or insolvency, the principal of and accrued interest on the
Notes shall automatically become and be immediately due and payable.
The holders of a majority in principal amount of the Notes then
outstanding shall have the right to direct the time, method and place of
conducting any proceedings for any remedy available to the Trustee, subject to
certain limitations specified in the Indenture.
Modifications of the Indenture
The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than a majority in
principal amount of the Notes at the time outstanding, to modify the Indenture
or any supplemental indenture or the rights of the holders of the Notes, except
that no such modification shall (i) extend the fixed maturity of any Note,
reduce the rate or extend the time for payment of interest thereon, reduce the
principal amount thereof or premium, if any, thereon, reduce any amount payable
upon redemption thereof, change the obligation of the Company to repurchase any
Note upon the occurrence of any Change in Control in a manner adverse to holders
of Notes, impair the right of a holder to institute suit for the payment
thereof, change the currency in which the Notes are payable or impair the right
to convert the Notes into Common Stock subject to the terms set forth in the
Indenture, or modify the provisions of the Indenture with respect to the
subordination of the Notes in a manner adverse to the holders of the Notes in
any material respect, without the consent of each holder of a Note so affected,
or (ii) reduce the aforesaid percentage of Notes
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the holders of which are required to consent to any such modifications, without
the consent of the holders of all of the Notes then outstanding.
Registration Rights
In compliance with its obligations under the Registration Rights
Agreement, the Company has, at its expense, filed with and caused to be declared
effective by the Commission the Registration Statement of which this Prospectus
is a part, covering resales by holders of Notes and Common Stock issuable upon
conversion of the Notes. The Company will use all reasonable efforts to keep
the registration statement effective until the earlier of June 12, 1999 or until
the Registration Statement is no longer required for transfer of the Notes or
Common Stock issuable upon conversion of the Notes. The Company will be
permitted to suspend the use of the prospectus which is a part of the
Registration Statement during certain periods of time and under certain
circumstances relating to pending corporate developments, public filings with
the Commission and similar events. The Company has agreed to pay liquidated
damages to all holders of Notes and all holders of Common Stock issued upon
conversion of the Notes if the Registration Statement is not timely filed or if
the prospectus is unavailable for periods in excess of those permitted under the
Registration Rights Agreement. A holder who sells Notes or Common Stock issued
upon conversion of the Notes pursuant to the Registration Statement generally
will be required to be named as a selling securityholder in the related
prospectus, deliver a prospectus to purchasers and be bound by those provisions
of the Registration Rights Agreement which are applicable to such holder
(including indemnification provisions). The Company will pay all expenses of
the Registration Statement, provide to each registered holder requesting to sell
Notes or shares of Common Stock copies of such prospectus, notify each
registered holder when the Registration Statement has become effective and take
certain other actions as are required to permit, subject to the foregoing,
unrestricted resales of the Notes and Common Stock issued upon conversion of the
Notes. There can be no assurance that the prospectus will be available to
effect resales at the time any such notice is given by a holder.
Concerning the Trustee
PNC Bank, National Association, as Trustee under the Indenture, has
been appointed by the Company as the paying agent, conversion agent, registrar
and custodian with regard to the Notes. PNC Bank, National Association is a
lender under, and a party to, the Credit Agreement, and has received a portion
of the net proceeds of the Debt Offering. The Trustee or its affiliates may from
time to time in the future provide banking and other services to the Company in
the ordinary course of its business.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 45,000,000
shares of Common Stock, par value $.01 per share, of which 24,258,767 shares
were outstanding as of August 16, 1996, and 5,000,000 shares of preferred stock,
par value $.01 per share, of which no shares are outstanding.
Common Stock
As of August 16, 1996, there were 24,258,767 outstanding shares of
Common Stock held by 115 holders of record. The holders of Common Stock are
entitled to one vote for each share of Common Stock on all matters submitted to
a vote of stockholders and do not have cumulative voting rights. Accordingly,
the holders of a majority of the Common Stock entitled to vote in any election
of directors may elect all of the directors standing for election. The holders
of Common Stock are entitled to receive such dividends, if any, as may be
declared by the Board of Directors from time to time out of legally available
funds. Upon liquidation, dissolution or winding up of the Company, the holders
of the Common Stock are entitled to share in all assets of the Company that are
legally available for distribution, after payment of all debts and other
liabilities and any distribution to preferred stockholders who have a
liquidation preference over the holders of Common Stock. The holders of Common
Stock have no preemptive, subscription, redemption or conversion rights. The
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outstanding shares of Common Stock are, and the shares to be issued upon
conversion of the Notes will be, when issued and paid for, legally issued, fully
paid and nonassessable. The rights, preferences and privileges of holders of
Common Stock will be subject to the rights of the holders of shares of any
series of preferred stock that the Company may issue in the future.
Preferred Stock
The Company may issue up to 5,000,000 shares of preferred stock from
time to time in one or more series. The Board of Directors, without further
approval of the holders of Common Stock, is authorized to fix the dividend
rights and terms, conversion rights, voting rights, redemption rights and terms,
liquidation preferences, sinking funds and any other rights, preferences,
privileges and restrictions applicable to each such series of preferred stock.
The issuance of preferred stock, while providing flexibility in connection with
possible financings, acquisitions and other corporate transactions, could, among
other things, adversely affect the voting power of the holders of Common Stock
and, under certain circumstances, make it more difficult for a third party to
gain control of the Company, deny stockholders the receipt of a premium on their
Common Stock and have a depressive effect on the market price of the Common
Stock. The Company has no present plan to issue any preferred stock.
Delaware Anti-Takeover Law and Certain By-Law Provisions
The Company is a Delaware corporation and consequently is subject to
certain anti-takeover provisions of the General Corporation Law of the State of
Delaware. The business combination provision contained in Section 203 of the
General Corporation Law of the State of Delaware ("Section 203") defines an
interested stockholder of a corporation as any person that (i) owns, directly or
indirectly, or has the right to acquire, 15% or more of the outstanding voting
stock of the corporation or (ii) is an affiliate or associate of the corporation
and was the owner of 15% or more of the outstanding voting stock of the
corporation at any time within the three-year period immediately prior to the
date on which it is sought to be determined whether such person is an interested
stockholder; and the affiliates and the associates of such person. Under
Section 203, a Delaware corporation may not engage in any business combination
with any interested stockholder for a period of three years following the date
such stockholder became an interested stockholder, unless (i) prior to such date
the board of directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder, or (ii) upon consummation of the transaction which
resulted in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding, for determining
the number of shares outstanding, (a) shares owned by persons who are directors
and officers and (b) employee stock plans, in certain instances), or (iii) on or
subsequent to such date the business combination is approved by the board of
directors and authorized at an annual or special meeting of stockholders by at
least 66-2/3% of the outstanding voting stock that is not owned by the
interested stockholder. The restrictions imposed by Section 203 will not apply
to a corporation if (i) the corporation's original certificate of incorporation
contains a provision expressly electing not to be governed by this section or
(ii) the corporation, by the action of its stockholders holding a majority of
outstanding stock, adopts an amendment to its certificate of incorporation or
by-laws expressly electing not to be governed by Section 203 (such amendment
will not be effective until 12 months after adoption and shall not apply to any
business combination between such corporation and any person who became an
interested stockholder of such corporation on or prior to such adoption).
The Company has not elected out of Section 203, and the restrictions
imposed by Section 203 apply to the Company. Section 203 could, under certain
circumstances, make it more difficult for a third party to gain control of the
Company, deny stockholders the receipt of a premium on their Common Stock and
have a depressive effect on the market price of the Common Stock.
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The By-Laws of the Company provide for a classified Board of Directors
consisting of three classes as nearly equal in size as possible. The
classification of the Board of Directors could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
acquiring, control of the Company.
Limitation of Liability; Indemnification
As permitted by the General Corporation Law of the State of Delaware,
the Company's Restated Certificate of Incorporation provides that directors of
the Company will not be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the Company or
its stockholders, (ii) for acts of omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the General Corporation Law of the State of Delaware, relating to prohibited
dividends, distributions and repurchases or redemptions of stock, or (iv) for
any transaction from which the director derives an improper personal benefit.
However, such limitation in liability would not apply to violations of the
federal securities laws, nor does it limit the availability of non-monetary
relief in any action or proceeding against a director. The Restated Certificate
of Incorporation also includes provisions for indemnification of the Company's
directors and officers to the fullest extent permitted by the General
Corporation Law of the State of Delaware as now or hereinafter in effect.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers or persons controlling the Company pursuant
to the foregoing provisions, the Company has been informed that in the opinion
of Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
Transfer Agent and Registrar
The Transfer Agent and Registrar for the Common Stock is First Union
National Bank of North Carolina.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain United States federal
income tax considerations relevant to holders of the Notes. This discussion is
based upon the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Regulations, Internal Revenue Service ("IRS") rulings and judicial decisions now
in effect, all of which are subject to change (possibly with retroactive effect)
or different interpretations. This discussion does not purport to deal with all
aspects of federal income taxation that may be relevant to a particular holder
of the Notes, and it is not intended to be wholly applicable to all categories
of holders, some of which, such as dealers in securities, banks, insurance
companies and tax-exempt organizations, may be subject to special rules. In
addition, this discussion is limited to persons that will hold the Notes
represented thereby as a "capital asset" within the meaning of section 1221 of
the Code.
ALL PROSPECTIVE PURCHASERS OF THE NOTES ARE ADVISED TO CONSULT THEIR
OWN TAX ADVISORS REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES AND THE
COMMON STOCK.
Interest Income. Interest on the Notes will be includible in the
income of a holder under the holder's regular method of accounting. The Notes
will not be treated as having been issued with original issue discount.
Conversion of Notes into Common Stock. In general, no gain or loss
will be recognized for federal income tax purposes on a conversion of the Notes
into shares of Common Stock. However, cash paid in lieu of a fractional share
of Common Stock will likely result in taxable gain (or loss), which will be
capital gain (or loss), to the extent that the amount of such cash exceeds (or
is exceeded by) the portion of the adjusted basis
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of the Note allocable to such fractional share. The adjusted basis of shares of
Common Stock received on conversion will equal the adjusted basis of the Note
converted, reduced by the portion of adjusted basis allocated to any fractional
share of Common Stock exchanged for cash. The holding period of an investor in
the Common Stock received on conversion will include the period during which the
converted Notes were held.
The conversion price of the Notes is subject to adjustment under
certain circumstances. Section 305 of the Code and the Treasury Regulations
issued thereunder may treat the holders of the Notes as having received a
constructive distribution, resulting in ordinary income (subject to a possible
dividends-received deduction in the case of corporate holders) to the extent of
the Company's current and/or accumulated earnings and profits, if, and to the
extent that certain adjustments in the conversion price that may occur in
limited circumstances (particularly an adjustment to reflect a taxable dividend
to holders of Common Stock) increase the proportionate interest of a holder of
Notes in the fully diluted Common Stock, whether or not such holder ever
exercises its conversion privilege. Moreover, if there is not a full adjustment
to the conversion ratio of the Notes to reflect a stock dividend or other event
increasing the proportionate interest of the holders of outstanding Common Stock
in the assets or earnings and profits of the Company, then such increase in the
proportionate interest of the holders of the Common Stock generally will be
treated as a distribution to such holders, taxable as ordinary income (subject
to a possible dividends-received deduction in the case of corporate holders) to
the extent of the Company's current and/or accumulated earnings and profits.
Market Discount. Investors acquiring Notes pursuant to this
Prospectus should note that the resale of the Notes may be adversely affected by
the market discount provisions of sections 1276 through 1278 of the Code. Under
the market discount rules, if a holder of a Note (other than a holder who
purchased the Note upon original issuance) purchases it at a market discount
(i.e., at a price below its stated redemption price at maturity) in excess of a
statutorily-defined de minimis amount and thereafter recognizes gain upon a
disposition or retirement of the Note, then the lesser of the gain recognized or
the portion of the market discount that accrued on a ratable basis (or, if
elected, on a constant interest rate basis) generally will be treated as
ordinary income at the time of the disposition. Moreover, any market discount
in a Note may be taxable to an investor to the extent of appreciation at the
time of certain otherwise non-taxable transactions (e.g., gifts). Any accrued
market discount not previously taken into income prior to a conversion of a
Note, however, should (under Treasury Regulations not yet issued) carry over to
the Common Stock received on conversion and be treated as ordinary income upon a
subsequent disposition of such Common Stock, to the extent of any gain
recognized on such disposition. In addition, absent an election to include
market discount in income as it accrues, a holder of a market discount debt
instrument may be required to defer a portion of any interest expense that
otherwise may be deductible on any indebtedness incurred or maintained to
purchase or carry such debt instrument until the holder disposes of the debt
instrument in a taxable transaction.
Sale, Exchange or Retirement of the Notes. Each holder of Notes
generally will recognize gain or loss upon the sale, exchange, repurchase,
redemption, retirement or other disposition of those Notes measured by the
difference (if any) between (i) the amount of cash and the fair market value of
any property received (except to the extent that such cash or other property is
attributable to the payment of accrued interest not previously included in
income, which amount will be taxable as ordinary income) and (ii) the holder's
adjusted tax basis in those Notes (including any market discount previously
included in income by the holder). Each holder of Common Stock into which the
Notes are converted, in general, will recognize gain or loss upon the sale,
exchange, repurchase, redemption, retirement or other disposition of the Common
Stock measured under rules similar to those described in the preceding sentence
for the Notes. Special rules may apply to redemptions of Common Stock which may
result in different treatment. Any such gain or loss recognized on the sale,
exchange, repurchase, redemption, retirement or other disposition of a Note or
share of Common Stock should be capital gain or loss (except as discussed under
"Market Discount" above), and would be long-term capital gain or loss if the
Note or the Common Stock had been held for more than one year at the time of the
sale or exchange. An investor's initial basis in a Note will be the cash price
it paid therefor.
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Backup Withholding. A holder of Notes or Common Stock may be subject
to "backup withholding" at a rate of 31% with respect to certain "reportable
payments," including interest payments, dividend payments and, under certain
circumstances, principal payments on the Notes. These backup withholding rules
apply if the holder, among other things, (i) fails to furnish a social security
number or other taxpayer identification number ("TIN") certified under penalties
of perjury within a reasonable time after the request therefor, (ii) furnishes
an incorrect TIN, (iii) fails to report properly interest or dividends, or (iv)
under certain circumstances, fails to provide a certified statement, signed
under penalties of perjury, that the TIN furnished is the correct number and
that such holder is not subject to backup withholding. A holder who does not
provide the Company with its correct TIN also may be subject to penalties
imposed by the IRS. Any amount withheld from a payment to a holder under the
backup withholding rules is creditable against the holder's federal income tax
liability, provided that the required information is furnished to the IRS.
Backup withholding will not apply, however, with respect to payments made to
certain holders, including corporations, tax-exempt organizations and certain
foreign persons ("exempt recipients"), provided their exemptions from backup
withholding are properly established.
The amount of any "reportable payments" including interest and
dividends made to the holders of Notes and Common Stock (other than to holders
which are exempt recipients) and the amount of tax withheld, if any, with
respect to such payments will be reported to such holders and to the IRS for
each calendar year.
Foreign Holders. The following discussion is a summary of certain
United States federal income tax consequences to a Foreign Person that holds a
Note. The term "Foreign Person" means a nonresident alien individual or foreign
corporation, but only if the income or gain on the Note is not "effectively
connected with the conduct of a trade or business within the United States." If
the income or gain on the Note is "effectively connected with the conduct of a
trade or business within the United States," then the nonresident alien
individual or foreign corporation will be subject to tax on such income or gain
in essentially the same manner as a U.S. citizen or resident or a domestic
corporation, as discussed above, and in the case of a foreign corporation, may
also be subject to the branch profits tax.
Under the portfolio interest exception to the general rules for the
withholding of tax on interest paid to a Foreign Person, a Foreign Person will
not be subject to United States federal income tax (or to withholding) on
interest payments on a Note, provided that (i) the Foreign Person does not
actually or constructively own 10% or more of the total combined voting power of
all classes of stock of the Company entitled to vote and is not a controlled
foreign corporation with respect to the United States that is related to the
Company through stock ownership, and (ii) the Company, its paying agent or the
person who would otherwise be required to withhold tax receives either (A) a
statement (an "Owner's Statement") signed under penalties of perjury by the
beneficial owner of the Note in which the owner certifies that the owner is not
a U.S. person and which provides the owner's name and address, or (B) a
statement signed under penalties of perjury by the Financial Institution holding
the Note on behalf of the beneficial owner, together with a copy of the Owner's
Statement. The term "Financial Institution" means a securities clearing
organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business and that holds a Note
on behalf of the owner of the Note. A Foreign Person who does not qualify for
the "portfolio interest" exception, would, under current law, generally be
subject to United States federal withholding tax at a flat rate of 30% (or lower
applicable treaty rate) on interest payments.
If a Foreign Person is treated as receiving a distribution taxable as
a dividend as a result of an adjustment in the conversion price of the Notes, as
described above under "Description of Notes--Conversion of Notes," such deemed
dividend will be subject to United States federal withholding tax at a 30% (or
lower applicable treaty) rate.
In general, gain recognized by a Foreign Person upon the redemption,
sale or exchange of a Note (including any gain representing accrued market
discount) will not be subject to United States federal income
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tax. However, a Foreign Person may be subject to United States federal income
tax at a flat rate of 30% (unless exempt by an applicable treaty) on any such
gain if the Foreign Person is an individual present in the United States for 183
days or more during the taxable year in which the Note is redeemed, sold or
exchanged, and certain other requirements are met.
LEGAL MATTERS
The validity of the issuance of the Notes offered hereby and the
Common Stock issuable upon conversion of the Notes has been passed upon for the
Company by Duane, Morris & Heckscher, Philadelphia, Pennsylvania. Thomas J.
Karl, a partner in Duane, Morris & Heckscher, has served as the Vice President,
Secretary and General Counsel of the Company since May 27, 1996, and is the
beneficial owner of 1,540 shares of the Company's Common Stock. Mr. Karl also
holds options to purchase 180,000 shares of Common Stock.
EXPERTS
The consolidated balance sheets and the supplemental consolidated
balance sheets of the Company and its subsidiaries as of December 31, 1995 and
1994 and the related consolidated statements of income, stockholders' equity and
cash flows and supplemental consolidated statements of income, stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1995 incorporated by reference in this Prospectus have been incorporated by
reference herein in reliance on the reports of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing, which reports are also incorporated by reference
herein.
The Company acquired Wichita Dialysis Group and Healthcare Corporation
and Affiliates in business combinations that have both been accounted for using
the pooling-of-interests method of accounting. The financial statements of
Wichita Dialysis Group and Healthcare Corporation and Affiliates as of December
31, 1993 and 1994 and for the years then ended were audited by Baird, Kurtz &
Dobson and Deloitte & Touche LLP, respectively, as stated in their reports
incorporated by reference herein, and the reports of Coopers & Lybrand L.L.P.,
insofar as they relate to the amounts included for Wichita Dialysis Group and
Healthcare Corporation and Affiliates, are based solely on the reports of Baird,
Kurtz & Dobson and Deloitte & Touche LLP, respectively, given upon the authority
of such firms as experts in accounting and auditing. Baird, Kurtz & Dobson and
Deloitte & Touche LLP are independent auditors.
The Company acquired KCDC/KCCC Group in a business combination that
has been accounted for using the purchase method of accounting. The combined
balance sheet of KCDC/KCCC Group as of December 31, 1995 and the related
combined statements of operations, stockholders' equity and cash flows for the
year then ended incorporated by reference in this Prospectus have been
incorporated by reference herein in reliance on the report of Coopers & Lybrand
L.L.P., independent accountants, given on the authority of that firm as experts
in accounting and auditing, which report is also incorporated by reference
herein.
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